Effects of the NAFTA on Customs Service Regulations

Richmond, Jeanette Camara, Law and Policy in International Business

Ratification and implementation of the North American Free Trade Agreement (NAFTA)(1) produced significant developments in the United States Customs Service (Customs) in 1993 and 1994. In order to make existing regulations consistent with NAFTA provisions, the Customs Regulations were amended by interim regulations, effective January 1, 1994.(2) One purpose of the NAFTA is to eliminate trade barriers between Canada, Mexico, and the United States,(3) and the interim regulations were drafted to advance this purpose by modifying regulations dealing with free and reduced rate article,(4) special classes of merchandise,(5) Customs' financial and accounting procedures,(6) treatment of goods from Canada and Mexico,(7) country of origin marking,(8) recordkeeping, inspection, search and seizure,(9) protests,(10) administrative rulings,(11) approval of information collection requirements,(12) and drawback.(13) The interim regulations also add a new section to the Code of Federal Regulations dealing specifically with the NAFTA and touching on areas addressed by the amendments,(14) such as the rules of origin requirements.(15) This update reviews changes relating to protests and rules of origin, and also examines the ramifications of uniform regulations with regard to the rules of origin.

I. Protests

Customs regulations prior to the NAFTA did not allow a foreign exporter or producer to appeal decisions of a Customs Service district director,(16) and without a valid administrative protest, the exporter or producer was barred from bringing a suit in federal court.(17) NAFTA Article 510 and Section 208 of the Implementation Act have required that the regulations be amended to allow foreign exporters and producers to file protests.(18) Under the new regulations, foreign exporters and producers may file protests if they have filed a Certificate of Origin demonstrating that the goods exported to the United States qualified for preferential tariff treatment under the NAFTA.(19)

A petitioner appealing the decision of a district director files the appeal with that district director or with a port director if the protest is filed at the port of entry rather than the district headquarters.(20) Customs has jurisdiction to hear protests over matters including: the appraised value of merchandise, classification, rate and amount of chargeable duties, all charges or exactions under the jurisdiction of the Secretary of the Treasury, exclusion of merchandise under Customs laws, refusals to pay drawback claims, and refusals to reliquidate entries.(21) The district director must act upon most protests within two years,(22) and must act upon protests of merchandise exclusion within thirty days.(23)

Under the previous regulations, if an importer sought relief and then withdrew the protest, the exporter or producer dealing with the importer was left without recourse. While exporters and producers from Canada and Mexico not having Certificates of Origin, as well as all those from other countries, still will be unable to appeal decisions of Customs district directors, the interim regulations give Canadian and Mexican exporters and producers having Certificates of Origin the right to appeal decisions as if they were U.S. importers or their agents. U.S. exporters to Canada and Mexico will similarly be able to appeal administrative decisions in those countries.

The question raised by foreign exporters' and producers' new rights to appeal Customs rulings is whether this development will actually lead to increased protests and eventual litigation, and if so, whether this increase in litigation might itself be a barrier to trade. The likely result of the increased access to Customs protests and the U.S. courts is that Mexican and Canadian exporters and producers will become more willing to export to the United States, just as increased access to Mexican administrative proceedings is certain to increase U.S. exporters willingness to export to Mexico. …

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